Insurer Groups: Ruling Suggests Flood Exclusion Valid, Enforceable

Insurance companies believe that even though a court rejected a motion to dismiss the Mississippi case challenging the flood exclusion in standard homeowners insurance policies, the ruling is actually a good sign for the insurance industry.

Three trade groups that have filed an amicus brief in the case said they think the reasoning underlying the denial by the U.S. District Court for the Southern District of Mississippi of a motion to dismiss the lawsuit suggests that “the court understands that the explicit water damage/flood exclusion in this policy does exclude coverage for hurricane driven water (also known as storm surge).”

Allstate Insurance Co. had sought the dismissal of the case that is challenging the validity of the exclusion for claims from Hurricane Katrina.

The American Insurance Association, the National Association of Mutual Insurers and the Property Casualty Insurers Association of America issued the following joint statement:

“While we would have preferred that the motion for judgment on the pleadings be granted at this stage, the underlying opinion is good because it strongly suggests that the court understands that the explicit water damage/flood exclusion in this policy does exclude coverage for hurricane driven water (also known as “storm surge”).

“This part of the decision is positive for insurers and other businesses that rely on the integrity of their contracts in Mississippi because it recognizes this contract provision is valid, enforceable and applicable in this case.

“It also demonstrates that, notwithstanding the challenges and devastation confronting this family and the entire Gulf Coast, contracts can still get a fair reading in the courts. That fact should encourage the entire business community, not merely insurers and their policyholders, to remain committed to the state.”

Sources: American Insurance Association, the National Association of Mutual Insurers and the Property Casualty Insurers Association of America